Chart patterns are recurring price configurations, supposed to announce a continuation or a reversal. They fascinate — and they deserve as much rigour as caution.
Reversal patterns
- Head and shoulders: three peaks, the middle one higher. A break of the “neckline” signals a possible bearish reversal.
- Double top / double bottom: price fails twice at the same level, a sign that the force is exhausting itself.
Continuation patterns
- The flag: a short, tight consolidation after a violent move, often a pause before resumption.
- The triangle: the swings narrow, pressure builds; the exit from the triangle gives the direction.
Intellectual honesty requires saying it
Academic studies on the predictive power of chart patterns are, at best, mixed. The human brain excels at seeing patterns, including where there are none (pareidolia). A pattern is never a guarantee.
How to use them properly
Treat a pattern as a hypothesis with a plan attached, not as a prophecy: where to enter, where to place the stop if you are wrong, what the target is. A pattern that fails and costs you little is worth more than a “correct” pattern with no risk management.
À retenir
- ✓Reversal (head and shoulders, double top) vs continuation (flag, triangle).
- ✓Their predictive power is debated: be wary of your own pattern-recognition bias.
- ✓A pattern is only worth something alongside a stop and a risk plan.